Author Topic: Is it ethical to make money from something you own?  (Read 42446 times)

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Is it ethical to make money from something you own?
« on: February 08, 2014, 02:06:01 PM »
There's a question I've been rolling over in my head for a while now and I just cannot seem to find a good answer to it. Is it ethical to make money off of something simply because you own it? Let me explain what I mean by this:

The reason why I'm asking this is because "making money from something you own" seems to be a cornerstone of Mustachianism (and indeed of becoming rich at all). Practically everyone who has lots of money has it because of something they own. Some people have real estate, others own shares in some companies, but the basic idea is always the same - you own something that continuously generates income without you needing to lift a single finger.

And this rises a little red light in my head because it smells a lot like freeloading. In the extreme case, you're just sitting at home, playing computer games, and enjoying the good life. You're not producing anything. You're a parasite. Everyone else works to sustain your lifestyle except for yourself.

Of course, such extremes are rare - most early-retired people do something productive simply for the fun of it - but the numbers are still there. If you produce less than you receive, you're a freeloading parasite. Something like that is only possible because someone somewhere receives less than he produces. After all, the sum of all things produced and received is zero (if you produce something but don't give it away, then you can consider that you've received it yourself).

Owning stock - the most common form of "money-generating-ownership" because it's the easiest - has another problem that I can see. It's commonly considered that investing in the stock market is good, because it gives money to the companies who can then use it to grow. But you don't buy shares from a company (not usually, anyway). You buy them from another shareholder. Who then uses your money to buy other shares which he/she considers more valuable. The money never gets to any companies, it just stays in the stock market. The most that other companies see from that money is when some shareholder decides to use some of your cash in order to get a meal at McDonalds. In other words, small amounts for everyday consumption. But most of it just stays locked in the system.

You could, of course, be more mindful and only buy stock from small startups, where the original shareholder is the founder and then you know that he will use this money to actually advance his business... But that's high-risk low-return investment; the complete opposite of what MMM advocates. It'll take years for those shares to make any income, if ever.

I feel like there's some piece of the puzzle missing here, it cannot be so... but what is it?

mm1970

  • Walrus Stache
  • *******
  • Posts: 7024
Re: Is it ethical to make money from something you own?
« Reply #1 on: February 08, 2014, 02:14:48 PM »
Quote
And this rises a little red light in my head because it smells a lot like freeloading. In the extreme case, you're just sitting at home, playing computer games, and enjoying the good life. You're not producing anything. You're a parasite. Everyone else works to sustain your lifestyle except for yourself.

You are consuming, however - supporting farmers who grow food, the people who provide power, the people who make the computers.

And without people investing money, how would the economy function at all?

matchewed

  • Magnum Stache
  • ******
  • Posts: 4337
  • Location: CT
Re: Is it ethical to make money from something you own?
« Reply #2 on: February 08, 2014, 02:16:43 PM »
What is the difference between buying stock in a small company versus a large company? You seem to make an assumption that one will use the money and the other does not use the money but that isn't true, both use the money. So why is one more or less ethical than the other? You make another assumption that the money stays in the stock market, and that isn't true, you've bought portion of ownership of that company and are using your capital to aid in the growth of that company regardless of size.

Argyle

  • Pencil Stache
  • ****
  • Posts: 909
Re: Is it ethical to make money from something you own?
« Reply #3 on: February 08, 2014, 02:23:28 PM »
This is indeed an ethical concern in many countries, although I've never heard it voiced in the U.S. before.

I think I look at it this way.  The things that it would actually benefit the world for me to do are not the same, by and large, as what employers would pay me to do.  I could get a job doing all kinds of things -- working at Starbucks, running a company that produces widgets, whatever -- but the good I produced would be fairly small.  I don't think we actually need more consumption and production in Western countries on this planet.  I'm not convinced I'd be adding to the greater good just by having a job.  I'd get money, but for doing anything worthwhile?  I dunno.  It might even be argued that if I can support myself without a job, I shouldn't be taking up a job that someone else might genuinely need to support themselves and maybe their family. 

But if I feel adding to the greater good is important, I can use the time I save by not having a paid job, and work for the stuff that is important.  I can fight unjust laws, try to restrain polluters, clean up wilderness, work in soup kitchens, advocate for causes, send money to worthwhile organizations, build houses for the poor.  Surely that's a lot more worthwhile than making more widgets or serving more coffee?

As for what others do, or should do, with their money -- I can have my opinions, and I can advocate for my position, but ultimately my primary responsibiity is to live my own life the way I feel is right. 

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8838
  • Registered member
Re: Is it ethical to make money from something you own?
« Reply #4 on: February 08, 2014, 02:28:20 PM »


And this rises a little red light in my head because it smells a lot like freeloading. In the extreme case, you're just sitting at home, playing computer games, and enjoying the good life. You're not producing anything. You're a parasite. Everyone else works to sustain your lifestyle except for yourself.


Um, no.  I will not be producing anything, I will have already produced what I need to live.

If I'm on a desert island, I can grow and harvest bananas each day for food.  I can also work extra hard for a few years and grow and harvest so many bananas that I can't eat them all in my lifetime.  At this point I no longer have to work for food anymore.  I can stop harvesting bananas, and I am no longer "producing" anything.  That's not unethical.

ice813

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Re: Is it ethical to make money from something you own?
« Reply #5 on: February 08, 2014, 02:32:55 PM »
You are not being paid because you own it, you are being paid because you took the risk to buy it and are responsible for it. First, lets look at a simpler example than stocks: real estate.

As the landlord you are providing a place for someone to live and are responsible for the property. The landlord holds the risk if the house is destroyed (i.e. fire) or loses value.

As the tenant you are paying for right to live in that house but you are also paying to not be responsible for the house. The tenant pays for not having "skin in the game" and can walk away when the lease is up.

You can look at stocks in a similar manner:

As a stockholder you are buying a share or partial ownership of the company in exchange for money. You are now partially responsible for the running of the company (shareholders elect board members who hire management teams) and your initial investment could be lost if the company goes under. For growth companies you are looking for your ownership to be worth more in the future than it is currently (this is your example of selling a stock for a higher price). More mature companies will pay a dividend back to their shareholders (a percentage of the profits) to reward shareholders for holding their stock.

The company gets a couple benefits for being publicly traded. It can raise more capital by offering more shares to the public (trading ownership for cash). Companies also benefit by having a higher stock price b/c it allows them to borrow more money from banks for future project that hopefully increase profits. The latter is the motivation for offering dividends since it rewards shareholders and encourages them to hold on to the stock.

I used a lot of generalizations so don't take this as gospel for all companies. My point is that is not evil to "own" assets like stocks or real estate because ownership carries risk and through managing risk you get paid.π

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Is it ethical to make money from something you own?
« Reply #6 on: February 08, 2014, 02:34:10 PM »
Great topic! I also had some ethical issues with this before adopting an investor mindset, but I don't anymore. If you view people in the world as free agents you do business with, they have their own reasons for paying you money. So in a simple example you loan money to an individual and they pay you interest. To them, it is a better deal to get the money now and pay a little more later. So as long as you are not tricking them, it's a fair deal. Some people think that it is easy to take advantage of a person in need this way, though.

About stocks, I think a lot of the income is dividends, which is a share in the profits. I agree that a lot of people just buy and sell and it seems arbitrary, but they are all choosing to do it. So if somebody "wins", it's OK because everybody agreed to play the game. Mustachians don't typically invest this way anyway, they hold there stocks for the long run.

Another topic, say you write a book and now you own it. Is it wrong to get royalties since you are not working on it anymore? I don't think so. Royalties can be seen as delayed payment for the original work.

There are problems, of course. Say a person acquires ownership of a natural resource by being the first to "claim" it. I'm not sure it is fair for them to keep all the profits, since they are extracting the value, rather than creating it.

You could apply that quote about democracy to the free market: Capitalism is the worst system of all, except for all the others!

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3715
  • Age: 41
  • Location: USA
Re: Is it ethical to make money from something you own?
« Reply #7 on: February 08, 2014, 02:41:17 PM »
YES. It's yours. If you own it as a result of your hard work, you've "produced" all your life to earn this thing you own. If I've saved my earnings and acquired an income producing asset rather than mindlessly spending my money on crap, why should I not be able to benefit from all that hard work and, dare I say, sacrifice it took to acquire the asset.

Even if I inherited the asset, I still have the same answer. Someone did something to own it through hard work, sacrifice, stealth investing, etc. I still think it's perfectly ethical to earn money for allowing someone to use it.

The only way I think it would feel unethical is if I acquired the asset in an unethical way, but that's another story.

horsepoor

  • Magnum Stache
  • ******
  • Posts: 3211
  • Location: At the Barn
  • Horses: for sanity & poverty!
Re: Is it ethical to make money from something you own?
« Reply #8 on: February 08, 2014, 03:03:02 PM »
Not parasitic, maybe more symbiotic.  The investor is providěng liquid assets for growth of business.  The investor's "take" from dividends and sales then goes back into the market as they use the money to buy groceries, housing and other goods and services.  Therefore, just by being willing to invest the money instead of stuffing it in a mattress, they're feeding the machine from two sides.

I don't see it as unethical at all.  As some others pointed out, there are many legitimate ways to make money, and legitimate ways to spend it.  Taking the concept to the level of absurdity, most of us could be found to be unethical based on the level and source of our earning and spending choices.

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Is it ethical to make money from something you own?
« Reply #9 on: February 08, 2014, 03:12:53 PM »
Not parasitic, maybe more symbiotic.  The investor is providěng liquid assets for growth of business.  The investor's "take" from dividends and sales then goes back into the market as they use the money to buy groceries, housing and other goods and services.  Therefore, just by being willing to invest the money instead of stuffing it in a mattress, they're feeding the machine from two sides.

Yes. In the US, many people think consuming is what drives the economy and you should spend what you make. I, and many others, think investing the surplus is a much better option than spending it on crap or sticking it in a safe.

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #10 on: February 08, 2014, 03:37:41 PM »
Thank you for all the responses! So far I've found two that hold traction with me.

One is Argyle's suggestion that to be ethical you should try to do as much good with your income & time as possible, so that you wouldn't really be a freeloader. That sounds good. The system can be abused, you can become a parasite - but you don't have to.

The other is ice813's suggestion that you get paid for accepting the risk. It's your neck on the line out there, and that's what you get paid for. Fair enough.

I've also myself come up with another way of looking at landlording and other types of rentals - it can be seen as providing a service, which is of use to someone else. Hmm... I suppose that investing can be seen the same way - you're renting out your money to the company.

As for the rest of explanations - think of it this way - imagine there's a huge cast iron pot into which all goods and services go. When you produce something, it goes in the pot (and you get money). When you consume something, you take it from the pot (and give up some of the money you have). Now, money-for-ownership allows you to put in a little bit of stuff in the pot, and then take out much, much more. Because some people need to keep giving you a portion of their money which they got from the pot. So for these people, they will be able to take out less from the pot than what they put in there.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Is it ethical to make money from something you own?
« Reply #11 on: February 08, 2014, 03:44:22 PM »
I've also myself come up with another way of looking at landlording and other types of rentals - it can be seen as providing a service, which is of use to someone else. Hmm... I suppose that investing can be seen the same way - you're renting out your money to the company.

This.

You have no idea how many tenants thank me profusely for providing them clean, safe housing, taking care of maintenance issues right away, etc.  They've dealt with terrible landlords all their lives and are grateful to have one that provides them a great service.

Yes, I am making money on it.  And they're quite happy about it.  Win-win.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

iamlindoro

  • Handlebar Stache
  • *****
  • Posts: 1520
    • The Earth Awaits
Re: Is it ethical to make money from something you own?
« Reply #12 on: February 08, 2014, 03:53:10 PM »
As for the rest of explanations - think of it this way - imagine there's a huge cast iron pot into which all goods and services go. When you produce something, it goes in the pot (and you get money). When you consume something, you take it from the pot (and give up some of the money you have). Now, money-for-ownership allows you to put in a little bit of stuff in the pot, and then take out much, much more. Because some people need to keep giving you a portion of their money which they got from the pot. So for these people, they will be able to take out less from the pot than what they put in there.

Except investing is more like buying a portion of the pot, which you can afford because you put something into the pot and didn't waste the returns.  You offer others the opportunity to thrive as you did, and in turn their own choice to buy a portion of the pot or not.  You cannot control their choices-- you can only control your own.

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #13 on: February 08, 2014, 03:59:33 PM »
Except investing is more like buying a portion of the pot

Is it? I see it as lending your money to someone else, who then has to pay you back, little by little, for their entire lives (dividends). Perpetual loan. In the long term you get back your entire loan but they still need to pay you more and more...

Selling/buying shares doesn't touch the pot at all. No goods or services get produced or consumed.
« Last Edit: February 08, 2014, 04:01:33 PM by Vilx- »

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Is it ethical to make money from something you own?
« Reply #14 on: February 08, 2014, 04:00:56 PM »
As for the rest of explanations - think of it this way - imagine there's a huge cast iron pot into which all goods and services go. When you produce something, it goes in the pot (and you get money). When you consume something, you take it from the pot (and give up some of the money you have). Now, money-for-ownership allows you to put in a little bit of stuff in the pot, and then take out much, much more. Because some people need to keep giving you a portion of their money which they got from the pot. So for these people, they will be able to take out less from the pot than what they put in there.

How about this: Whoever builds a place to live puts something really big into the pot. Then they can sell it to someone who is responsible for maintaining it. That person can sell it to someone else, or rent it out. Owners have to put a lot of things in the pot in order to save enough money to buy the house. So I don't think they get to take more out of the pot than they put in.

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #15 on: February 08, 2014, 04:05:11 PM »
In the long term, you might get all the money back. If you build a house for $200'000, and then rent it out for $1000/month, it will take you about 17 years to get it all back. OK, with maintenance added, it'll probably be closer to 20. Anyways, not that much. After that, you're taking out more than you've put in.

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Is it ethical to make money from something you own?
« Reply #16 on: February 08, 2014, 04:18:41 PM »
In the long term, you might get all the money back. If you build a house for $200'000, and then rent it out for $1000/month, it will take you about 17 years to get it all back. OK, with maintenance added, it'll probably be closer to 20. Anyways, not that much. After that, you're taking out more than you've put in.

That's true, but nobody would build or buy any houses if they couldn't eventually get more out than they spent on the house. If you build a house that costs X to build, you have hopefully added quite a bit more than X to the pot. You can sell the house and get paid in a big chunk, or rent it out and get paid in smaller chunks. Eventually the house will need to be repaired or will deteriorate. So you can't just get paid forever without putting more into the pot at some point.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Is it ethical to make money from something you own?
« Reply #17 on: February 08, 2014, 04:32:32 PM »
In the long term, you might get all the money back. If you build a house for $200'000, and then rent it out for $1000/month, it will take you about 17 years to get it all back. OK, with maintenance added, it'll probably be closer to 20. Anyways, not that much. After that, you're taking out more than you've put in.

You aren't taking out more than you put in, because you're providing a service.  You're adding value along the way.  And there's the whole time-value of money thing.

What you are doing is getting compensated for the value you provide. If you don't provide any value, you don't get any return.  If you have a falling down shack no one wants to rent, you won't get a return.  If you have a nice house, provided at a good value to tenants, that they willingly pay, you are getting paid according to that value you provide.

If you got a great deal on the property, and get paid back in 10 years, or got a mediocre deal, and are paid back in 20 years, or a poor deal, and are paid back in 100 years, does that change the value that you're providing to those tenants?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #18 on: February 08, 2014, 05:03:53 PM »
Yes, I agree. For renting a house there is the service aspect, which counts as adding to the pot.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Is it ethical to make money from something you own?
« Reply #19 on: February 08, 2014, 05:05:15 PM »
Yes, I agree. For renting a house there is the service aspect, which counts as adding to the pot.

Okay.  So now if you own part of a business, and that business is providing a service (even if you are hiring other people to provide that service - so now they have a job, as well as the customer being happy with the service they're paying for), that seems - to me - to be creating value as well.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #20 on: February 08, 2014, 05:12:06 PM »
Hmm... not sure I can make the mental jump here yet. In this case it's not me who's creating this service, it's my employees. And they're giving me a part of what they earn. Now, if I was actively leading the employees, I could see this as extending a service to them (leadership), but if I'm just a passive shareholder... What service am I providing to the company that they should pay me for?

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Is it ethical to make money from something you own?
« Reply #21 on: February 08, 2014, 05:20:21 PM »
What service am I providing to the company that they should pay me for?

Capital. Say a person has a great business idea, but they need some money to buy some equipment and to pay expenses until they make a consistent profit. The shareholders invest to provide the capital, which the owner does not have.

Same if an existing business wants to expand, but doesn't have the funds to do it.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8838
  • Registered member
Re: Is it ethical to make money from something you own?
« Reply #22 on: February 08, 2014, 05:22:18 PM »
Hmm... not sure I can make the mental jump here yet. In this case it's not me who's creating this service, it's my employees. And they're giving me a part of what they earn. Now, if I was actively leading the employees, I could see this as extending a service to them (leadership), but if I'm just a passive shareholder... What service am I providing to the company that they should pay me for?

Liquidity.  The original owner built the business, in the hopes of some day selling part of it.  You bought part of it, providing liquidity to the original owners and any subsequent owners.  In other words, someone out there wanted cash now, in exchange for giving up future dividends/profits.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11240
  • Age: 61
  • Location: NorCal
Re: Is it ethical to make money from something you own?
« Reply #23 on: February 08, 2014, 05:26:24 PM »
You aren't taking out more than you put in, because you're providing a service.  You're adding value along the way.  And there's the whole time-value of money thing.

This.

Also Vilx-, what if you rephrased your question to "Is it ethical to make money from something you earn?". Lots of folks have assets that they've worked hard to own. I suspect there are very few trustafarians here. Why shouldn't they enjoy the fruits of their labors?

[MOD EDIT: Final two sentences removed.  No need to get personal, it's a theoretical discussion Vilx- is trying to wrap his/her head around.]

« Last Edit: February 08, 2014, 05:31:49 PM by arebelspy »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Is it ethical to make money from something you own?
« Reply #24 on: February 08, 2014, 05:30:53 PM »
Hmm... not sure I can make the mental jump here yet. In this case it's not me who's creating this service, it's my employees. And they're giving me a part of what they earn. Now, if I was actively leading the employees, I could see this as extending a service to them (leadership), but if I'm just a passive shareholder... What service am I providing to the company that they should pay me for?

In addition to what bikebum and dragoncar said, let's look back at the rental property, since you seem to like that one, but can't leap yet to the business.

So let's say I have the rental, but now I hire an employee to manage it.  I do no work now, but collect the rents (and don't even actually collect them, they're just passed on to me).  Did it somehow go from ethical to unethical to do this, because I created a job for someone else to do it?  If anything, that seems even better than doing it myself.  Now I'm providing value to the tenant via safe, affordable housing and also now a job/income to an individual to help those tenants deal with maintenance requests (perhaps faster than I could), find new tenants, etc.

Is that okay to you?  If not, why not?  If yes, then why is a business different?  I'm creating value by having this company that a) provides jobs and b) provides a useful product or service to its customers.  Whether I'm physically doing it myself or using my capital to allow it to be done (without my providing that money to create the product, there would be no job to sell it and no pleasure derived from the customer who would want to buy it but couldn't), either way I am providing value.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

FIPurpose

  • Handlebar Stache
  • *****
  • Posts: 1174
  • Location: WA
    • FI With Purpose
Re: Is it ethical to make money from something you own?
« Reply #25 on: February 08, 2014, 05:44:04 PM »
Hmm... not sure I can make the mental jump here yet. In this case it's not me who's creating this service, it's my employees. And they're giving me a part of what they earn. Now, if I was actively leading the employees, I could see this as extending a service to them (leadership), but if I'm just a passive shareholder... What service am I providing to the company that they should pay me for?

You could say the same for owning a rental house. It is possible to own a rental home without actually managing it at all. You hire an employee to manage it and service it. You simply decide to own the home and have someone else work to keep it up.

Eventually you decide that the home isn't worth having all your eggs in and decide to find another person willing to buy half the home, reduce your risk and place capital elsewhere. You have now just sold "stock" in your rental home. Now instead of only one person owning the home, two people now own the home.

And this is all a passive investment, and no one would have had the job of managing the home or servicing it without the capital to do so.


You might be able to see it better if you remove money from the equation. Where you are a great musical instrument maker. You create all sorts of wonderful instruments, and then another man comes and offers to pay you regular dividends from his business for giving him these instruments. You decide it's a good deal, receive enough from him and decide you don't ever need to make any more instruments. Capital is necessary and is definitely worth something. And without that capital, there would have been no business, no jobs, and no dividend returns.

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #26 on: February 08, 2014, 05:51:41 PM »
So the service to the employees is... providing the company itself. Giving them a job. Because without me, they would have their skills, but nowhere to use them. Well, that makes sense.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11240
  • Age: 61
  • Location: NorCal
Re: Is it ethical to make money from something you own?
« Reply #27 on: February 08, 2014, 05:59:12 PM »
You aren't taking out more than you put in, because you're providing a service.  You're adding value along the way.  And there's the whole time-value of money thing.

This.

Also Vilx-, what if you rephrased your question to "Is it ethical to make money from something you earn?". Lots of folks have assets that they've worked hard to own. I suspect there are very few trustafarians here. Why shouldn't they enjoy the fruits of their labors?

[MOD EDIT: Final two sentences removed.  No need to get personal, it's a theoretical discussion Vilx- is trying to wrap his/her head around.]

Note Moderator: Sorry, this was not intended as such. Would you consider IM-ing me on this?

[Mod Note: PM sent, as requested. :) ]
« Last Edit: February 08, 2014, 06:38:31 PM by arebelspy »

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Is it ethical to make money from something you own?
« Reply #28 on: February 08, 2014, 06:06:06 PM »
So the service to the employees is... providing the company itself. Giving them a job. Because without me, they would have their skills, but nowhere to use them. Well, that makes sense.

That is how I see it. And if they don't want to work for you, they can try to find someone else to work for, or create their own business.

PeteD01

  • Bristles
  • ***
  • Posts: 415
Re: Is it ethical to make money from something you own?
« Reply #29 on: February 08, 2014, 06:22:57 PM »
It's called Capitalism. Old man Marx wrote a book about it. Not much of an economist the guy but has it nailed down nicely in terms of its amoral (note: not immoral) nature.
You buying shares in a company makes you a capitalist - that's all it takes. We usually buy index funds to hedge against entrepreneurial risk with the trade off of having to believe in ongoing economic expansion - which has worked out so far.
Any attempt to find the morally good in investing will only end up providing an ideological justification and therefore is political in nature.
If there is any argument for capitalism it is that is has so far turned out to be the nemesis of tyranny.
Good enough for for me to keep participating on the winner's side.


Peter
« Last Edit: February 08, 2014, 06:25:32 PM by PeteD01 »

LynnM

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Is it ethical to make money from something you own?
« Reply #30 on: February 08, 2014, 06:25:00 PM »
With most of the people I know, if they have passive income, it is usually due to much research, knowledge, time, effort and work on their part, not including the effort it took to make the money initially to invest in the first place.  Not too many people out there just sit eating bonbons and watching TV and end up with a large amount of passive income.   It takes a fair amount of effort to choose the right properties in the right areas and find and maintain good management and maintenance or research the companies and market conditions in order to not take too high a risk in stock investing.   And "passive" doesn't mean you do nothing.  You need to stay on top of quarterly earnings reports and knowledge of the companies you are invested in and overall market conditions in order to guard your investment and monitor your property managers.  If you don't, your passive investments could quickly turn into losses.    If you've put enough effort into making it run smoothly initially, then the workload goes down drastically, so you'll work much less than a normal hourly-wage job.

Argyle

  • Pencil Stache
  • ****
  • Posts: 909
Re: Is it ethical to make money from something you own?
« Reply #31 on: February 08, 2014, 10:14:37 PM »
No question that a lot of us on these boards are working hard for our capital.  Of course that's not always true everywhere.  There are numbers of people who've just inherited it and are not spending it quite as fast as it's making more money -- but they didn't lift a finger to be loaded with wealth.  And there are many people who work harder than most of us will ever work, but luck and the place they were born were not on their side, and they're working in Brazilian mines or walking twelve miles each way to fetch water every day -- or just taking two buses to get to their job at Wal-Mart -- and sheer hours and effort put in does not pay off for them the way it has for those of us who started out with more advantages.

So I think we have to beware of saying that we're affluent because we're so much more deserving than people who aren't.  Sometimes yes, but sometimes no.  And owning the land or assets or what have you is not always a sign that one deserves so much more than those who are working for us.  Plus it behoves us to treat those people justly, which is not always the case, not in the U.S. and particularly not in parts of Asia and China, where some of us have investments.  So I don't think we can always regard our money-making as good for the world.  To my mind, we have to be careful of the excesses of the system and be mindful in the ways we make money.

TreeTired

  • Bristles
  • ***
  • Posts: 451
  • Age: 135
  • Location: North Carolina
  • I think we can make it
Re: Is it ethical to make money from something you own?
« Reply #32 on: February 08, 2014, 10:43:10 PM »
If your passive income is derived from inherited wealth (or lottery winnings) then I would agree you are a parasite.

I like to think my passive income is derived from many years of hard, productive work.   Also, I learned in economics class that S=I,   Savings = investment, so without savers (earning interest) there can be no investment.

And what about all those people with jobs (I'm sure you have seen them in Government and private industry)  that collect paychecks but do very little and produce nothing of value?


One of the most ethical aspects of me not working and living on my investments and savings is that I am not taking a good job from someone who really needs it.   The job market is so tight now, young college graduates are having so much difficulty finding good jobs,  I think it is unethical for older people to keep working if they don't need the money.
« Last Edit: February 08, 2014, 10:45:57 PM by NC_MJ »

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #33 on: February 09, 2014, 01:56:42 AM »
I like to think my passive income is derived from many years of hard, productive work.
The problem is that passive income can be made exponential. You can use it to acquire more assets which generate more passive income and so on into infinity. With a fixed amount of hard work you can get limitless income. Not much better than the lottery, really.

That is, unless you consider that your assets are a service to someone as well, as discussed above.

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Is it ethical to make money from something you own?
« Reply #34 on: February 09, 2014, 03:59:46 AM »
The problem is that passive income can be made exponential. You can use it to acquire more assets which generate more passive income and so on into infinity. With a fixed amount of hard work you can get limitless income. Not much better than the lottery, really.

You can't get passive income for too long because at some point, you'll be dead. You could pass it on to your kids so they don't have to work for it, but I don't think that is a mustachian thing to do. I think most mustachians make their own money, and teach their kids to do the same. If a mustachian ends up acquiring an excess of money through his/her investments, he/she will most likely put it towards charitable causes rather than keep or spend it. You are right though, that it could be kept in the family through many generations generating more money without work (assuming that is what you are talking about). I think people call this "old money". I don't have kids yet, but my plan is to teach them how to make their own money, and if I have any left when I am about to die I'll will it to a charitable cause.

StetsTerhune

  • Bristles
  • ***
  • Posts: 451
Re: Is it ethical to make money from something you own?
« Reply #35 on: February 09, 2014, 06:13:55 AM »
Here's my 45 second summary of Macroeconomics.


Production is a function of capital and labor.  Y= F(K,L)

Economic summary of my life:

age 22-32:  I, stetsterhune, am Labor. Using capital that the company I work for has, my labor produces value ("money"). I get some of this money, the provider of the capital gets some of this money. Seems fair, each of us is worthless alone. With the money I have, I can either consume or I can save. Consumed money essentially disappears. Saved money adds to the world's pot of capital.

age 32+: I, stesterhune, am Capital. I have saved up enough capital, invested in the stock market, that I am now the provider of a small amount of capital in tens of thousands of companies throughout the world and get to receive a small amount of money from the value that the workers of these companies create with their labor and my capital.

The sticky point for people here is the incredibly abstract way in which I've created the capital that I'm living off of in ages 32+. If you work at P&G, I had nothing to do with the creation of any of the capital that you're using. But.... someone did. And at some point, that person sold a bit of that capital so that he could consume something. and he sold it to someone who sold it to someone who sold it to someone who sold it to Vanguard who sold it to me.

If you want to look at this from a moral stand point. If I sold all my stock and used it to consume something, the amount of capital in the world decreases (because the person who bought the stock from me is not investing it somewhere else.) And when there's less capital, then labor is less efficient, so someone, somewhere is working the same amount, but doing it less efficiently and getting less for it because my capital is not there.

I realize how abstractly all these things are happening in real life. But I do truly believe that on some level, this is what is happening.

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6028
  • Location: Fayetteville, NC
Re: Is it ethical to make money from something you own?
« Reply #36 on: February 09, 2014, 07:43:39 AM »
This is a really dumb question.

What alternatives do you have, making money off of something someone else owns?

How about I sell your car and keep the money, sell your time and keep the money, and invest your earnings and keep the money?  Would that be more ethical?

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Is it ethical to make money from something you own?
« Reply #37 on: February 09, 2014, 08:55:14 AM »
This is a really dumb question.

What alternatives do you have, making money off of something someone else owns?

How about I sell your car and keep the money, sell your time and keep the money, and invest your earnings and keep the money?  Would that be more ethical?

Don't bring the Government into this!  ;)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6028
  • Location: Fayetteville, NC
Re: Is it ethical to make money from something you own?
« Reply #38 on: February 09, 2014, 08:56:28 AM »
This is a really dumb question.

What alternatives do you have, making money off of something someone else owns?

How about I sell your car and keep the money, sell your time and keep the money, and invest your earnings and keep the money?  Would that be more ethical?

Don't bring the Government into this!  ;)

Good one!

Jamesqf

  • Magnum Stache
  • ******
  • Posts: 4047
Re: Is it ethical to make money from something you own?
« Reply #39 on: February 09, 2014, 11:51:37 AM »
This is a really dumb question.

It might or might not be dumb: my problem is trying to fathom the state of mind in which it is even a question.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Is it ethical to make money from something you own?
« Reply #40 on: February 09, 2014, 12:21:12 PM »
This is a really dumb question.

It might or might not be dumb: my problem is trying to fathom the state of mind in which it is even a question.

Indeed, it seems pretty obvious to me why it's ethical to earn money off of things you own. As long as you aren't doing forcing people to use it at gunpoint, but are providing them utility that they are willingly paying for, seems like a great thing.

However it is interesting to bring it up as a possibility (not being an ethical thing), and then reading the various arguments that those that disagree (myself included) make in favor of it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #41 on: February 09, 2014, 12:33:16 PM »
My chief concern is simply that it allows one to become a parasite. That is, to live in such a way that one takes more from the "pot" than they put in.

If so, then this seems to me to be the root cause of what people call "income inequality". For one person to become rich another has to become poor.

I'll be honest, the whole money-goods loop is still quite foggy in my head, so perhaps this fear is unjustified. I know there are explanations out there that say that investment does the exact opposite. But... I still haven't arrived at the full picture to verify this.

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6028
  • Location: Fayetteville, NC
Re: Is it ethical to make money from something you own?
« Reply #42 on: February 09, 2014, 12:42:45 PM »
My chief concern is simply that it allows one to become a parasite. That is, to live in such a way that one takes more from the "pot" than they put in.
That would be people who refuse to work and prefer welfare or crime.

One could argue that those who inherited great wealth didn't work for it, but that problem usually solves itself in a couple of generations in the US.

Otherwise, people making money off of their property did so because they did something to earn that property.

If so, then this seems to me to be the root cause of what people call "income inequality". For one person to become rich another has to become poor.
Horseshit.   Just because I earn money does not prevent anyone else from earning it.  In fact, it may facilitate others making money.   This is true whether I work for pay or just rent out my money for interest or real estate for rent.
I'll be honest, the whole money-goods loop is still quite foggy in my head, so perhaps this fear is unjustified. I know there are explanations out there that say that investment does the exact opposite. But... I still haven't arrived at the full picture to verify this.
How about you do some more learning then?

I'll suggest http://www.amazon.com/The-Worldly-Philosophers-Economic-Thinkers/dp/068486214X/ref=sr_1_1?ie=UTF8&qid=1391974844&sr=8-1&keywords=the+worldly+philosophers
 as a great read and an excellent introduction to a host of deep thinkers about how the world, its people and economies really work.   

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #43 on: February 09, 2014, 01:15:36 PM »
Otherwise, people making money off of their property did so because they did something to earn that property.
Yes, but afterwards they get infinite returns. If the property would give a fixed amount of returns (even if large), I'd have no quarrel about it. But inifinity?

Just because I earn money does not prevent anyone else from earning it.
No, but as I understand it, the amount of goods and services produced is a finite amount, and it is limited not by money, but by our collective output. In other words, no matter how hard you try, a single person can only produce so much stuff - unless you get better technology. From this point of view, consuming more of these goods and services means that someone else has to get less, right?

How about you do some more learning then?
Thank you! I'll check it out. :)

iamlindoro

  • Handlebar Stache
  • *****
  • Posts: 1520
    • The Earth Awaits
Re: Is it ethical to make money from something you own?
« Reply #44 on: February 09, 2014, 01:23:07 PM »
Otherwise, people making money off of their property did so because they did something to earn that property.
Yes, but afterwards they get infinite returns. If the property would give a fixed amount of returns (even if large), I'd have no quarrel about it. But inifinity?

But it's *not* infinite.  It's limited by a) the price that the customer is willing to pay-- if someone considers it an unfair deal, they can opt *not* to purchase/rent/partake, and b) time.  Nobody has infinite time-- they have a choice to take their earned resources and turn them to further earnings, or to spend them.  Everyone has that same choice-- that others choose to spend their money foolishly and not put the money to work is not the fault of those who do.

It is, in effect, a feedback loop-- you can take modest earnings and make them produce modest earnings.  You can take those further earnings and, by investing them rather than spending them, turn them into above average earnings.  You can take above average earnings and do the same again, turning them into excellent earnings.  Each step along the way is a choice, and one that is available to anyone.  It's only unfair if everyone doesn't have the opportunity to make the same choices.

Vilx-

  • Stubble
  • **
  • Posts: 145
  • Age: 34
  • Location: Latvia
Re: Is it ethical to make money from something you own?
« Reply #45 on: February 09, 2014, 02:07:30 PM »
@iamlindoro - you say that it's not infinite, but then go on illustrating how to make it infinite. Just re-invest most of your earnings. Your income grows exponentionally, without you needing to do anything. OK, so at some point you will die, but if you've done your part correctly your children will continue where you left off. There is no upper limit.

@Knaak - yes, in this case all is fine. You make something, you sell it. Your "investor's" work is not much different from the contractor's work. He did some finite amount of work (organizing things) and got a finite reward.

I'm talking about the case where the investor doesn't sell the house to his customer but rents it. In this case, the customer just keeps on paying and paying. Eventually he will have covered all your expenses, but it won't stop there. He will continue paying and paying until you die of old age. And then he will continue paying your children. Again - no upper limit. And the loser in this case is the customer. It's basically like a deal - "I make you a house, and then you support me for the rest of my life".

OK, so in real life there will probably be multiple tenants, and the house has some continuous maintenance expenses, but that doesn't change anything. The investor doesn't need to do any work anymore - he can just survive on the continuous income from that little piece work that he did once, 10 years ago.

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: Is it ethical to make money from something you own?
« Reply #46 on: February 09, 2014, 02:25:21 PM »
I think a better question is, is it a good idea to structure our society in such a way that many of the best incomes are unavailable to most, not because they lack education or skills, but because they lack wealth?

The popular answer seems to be that wealth is available to all, based on merit and productivity. If you don't believe that then it's easy to see how you could view passive incomes as unethical - and it's pretty hard to believe. However, I think the goal should be creating the required meritocracy, rather than a society without passive incomes.

Frankies Girl

  • Magnum Stache
  • ******
  • Posts: 3043
  • Age: 82
  • Location: The laboratory
  • Typical Ghoul Next Door
Re: Is it ethical to make money from something you own?
« Reply #47 on: February 09, 2014, 02:27:23 PM »
@iamlindoro - you say that it's not infinite, but then go on illustrating how to make it infinite. Just re-invest most of your earnings. Your income grows exponentionally, without you needing to do anything. OK, so at some point you will die, but if you've done your part correctly your children will continue where you left off. There is no upper limit.

@Knaak - yes, in this case all is fine. You make something, you sell it. Your "investor's" work is not much different from the contractor's work. He did some finite amount of work (organizing things) and got a finite reward.

I'm talking about the case where the investor doesn't sell the house to his customer but rents it. In this case, the customer just keeps on paying and paying. Eventually he will have covered all your expenses, but it won't stop there. He will continue paying and paying until you die of old age. And then he will continue paying your children. Again - no upper limit. And the loser in this case is the customer. It's basically like a deal - "I make you a house, and then you support me for the rest of my life".

OK, so in real life there will probably be multiple tenants, and the house has some continuous maintenance expenses, but that doesn't change anything. The investor doesn't need to do any work anymore - he can just survive on the continuous income from that little piece work that he did once, 10 years ago.

The renter is not a "loser" in that scenario. You're forgetting that a renter is still getting value out of the deal. A renter isn't giving someone money for nothing. They get to live in a house/property for a set fee that costs less (most of the time) than outright buying a property, without the costs of maintaining and updating said property. They are free to choose a more mobile lifestyle by being a renter - choosing location, amenities, sizing - as appropriate for their needs at any particular time, without the hassles associated with owning. They are paying for mobility and a living space, so how is that coming out as being a loser?

And they are certainly free at any time to move from being a renter to an owner. No one is forcing the renting arrangement on them.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8838
  • Registered member
Re: Is it ethical to make money from something you own?
« Reply #48 on: February 09, 2014, 02:40:57 PM »
Otherwise, people making money off of their property did so because they did something to earn that property.
Yes, but afterwards they get infinite returns. If the property would give a fixed amount of returns (even if large), I'd have no quarrel about it. But inifinity?

But it's *not* infinite.  It's limited by a) the price that the customer is willing to pay-- if someone considers it an unfair deal, they can opt *not* to purchase/rent/partake, and b) time.  Nobody has infinite time-- they have a choice to take their earned resources and turn them to further earnings, or to spend them.  Everyone has that same choice-- that others choose to spend their money foolishly and not put the money to work is not the fault of those who do.

It is, in effect, a feedback loop-- you can take modest earnings and make them produce modest earnings.  You can take those further earnings and, by investing them rather than spending them, turn them into above average earnings.  You can take above average earnings and do the same again, turning them into excellent earnings.  Each step along the way is a choice, and one that is available to anyone.  It's only unfair if everyone doesn't have the opportunity to make the same choices.

More importantly, look up the "time value of money."  Yes a stock can theoretically pay dividends forever.  But theoretical future money is worth less than real money today.  That's why you can buy a share of all future profits in, say GE, for just $25.  If it was truly infinite, why would anyone sell you their shares?

Edit: of course another reason, I think related, is risk

LynnM

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Is it ethical to make money from something you own?
« Reply #49 on: February 09, 2014, 03:09:56 PM »


OK, so in real life there will probably be multiple tenants, and the house has some continuous maintenance expenses, but that doesn't change anything. The investor doesn't need to do any work anymore - he can just survive on the continuous income from that little piece work that he did once, 10 years ago.

I think this is strange where you obviously understand there may be "multiple tenants" -- think turnover time and costs, sometimes ridiculously high ones if they have abused the home -- and "some continuous maintenance expenses" which in reality owning for 30 years or more means new heat systems, new water heaters, new roof, maybe windows, siding, trim, etc.... more than "some."  So in the case of a landlord, clearly you do not understand the reality that it is not just "that little piece work he did once 10 years ago."  The tenant pays a fixed price for an allotted time whether or not major system repairs are necessary, guaranteeing his fixed expense for housing.  The landlord takes the risk of repairs, maintenance, non-payment of tenant, obsolescence, etc.   Many landlords cash flow very little until the mortgage is paid off, and then they are still dealing with real estate taxes, maintenance, and turnovers.   Many people prefer renting to owning as their costs are known and fixed for that period.   I guess my problem is your thinking that passive income is freeloading or parasitic somehow.  Freeloading would be living off relatives or friends, expecting them to support you, not coming up with ways to generate income that you can rely on even when you are no longer able to work so you'll never be a burden to others.    And I do hope I can pass it on to my children so they can live a better, more secure life as well.  We've taught them the value of assets and income and living within your means, and I feel comfortable that they will be good caretakers of any wealth we can pass along to them.